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Thursday, December 20,2007

GUEST OPINION

by WLJ
July 4, 2005 Country-of-origin labeling (popularly known as COOL) for beef and other meat products remains a controversial and divisive issue in the beef industry. A mandatory COOL program is scheduled to take effect in September 2006, but funding for that program is now seriously in question. An alternative to mandatory COOL is House Resolution 2068, also known as the Meat Promotion Act, which was recently introduced in the U.S. House of Representatives. Cattlemen favor COOL in some form––on that point, most of us are in agreement. But some proponents of mandatory COOL seem to go way beyond the desire to distinguish the quality and characteristics of U.S.-raised beef from beef raised in other countries. They would have consumers believe that if beef does not carry a “Raised in the USA” label, it may or may not be safe. Nothing could be further from the truth. The top priority for all cattlemen should be to assure consumers that all beef offered for sale in the U.S. is absolutely safe, or it will be removed from the meat case. I am as proud as anyone of the quality of the beef we produce in the United States, but I don’t need to frighten consumers into choosing it over foreign-raised beef. Consumer confidence is essential to growing beef demand, and we cannot undermine that confidence by implying that only “some beef” is safe, while some may or may not be. Supporters of mandatory COOL also overlook the fact that the vast majority of imported beef sold in the U.S. won’t fall under the mandatory labeling requirements that they tout so proudly. In fact, the overwhelming majority of imported beef consumed in this country is purchased through food service outlets, and therefore will not be labeled under the program set to take effect in 2006. So in the average grocery store meat case, over 90 percent of the beef offered for sale will carry the USA-origin label. Do I really need an expensive, mandatory program to distinguish my product from less than 10 percent of the beef with which it competes? How is that serving the interests of U.S. cattlemen? In fact, product differentiation is where I part company most strongly with proponents of mandatory COOL. Because such a large percentage of the imported product will be exempt and the vast majority of the product in the retail meat case would carry the U.S. label, mandatory COOL will just homogenize our brand and make it meaningless. Worse yet, we’ve paid for it (because the cost of business will be pushed down to the cow/calf operator) instead of getting paid for it. For adding value to our product by producing higher-quality, source-verified cattle, we should receive a return on our investment instead of being stuck with added cost. The success of many voluntary branded beef initiatives, that tout not only quality but also source identification, should be a signal to our industry that a mandatory solution is not needed. Our country was founded on free enterprise, not socialism or isolationism. We need to let the free market system in this country decide the value of origin labeling. As a cattleman who takes great pride in the beef I raise, I want to appeal to consumer’s desire for a quality product, rather than pander to unfounded fears about food safety. I also want the ability to be innovative and to differentiate my beef from other products—both foreign and domestic. I therefore feel that the voluntary measures proposed in the Meat Promotion Act offer a superior alternative to the costly, mandatory COOL requirements scheduled to take effect in 2006. — Marshall Edleman Editor’s note: Marshall Edleman is a cattleman from Willow Lake, SD, and a member of the National Cattlemen’s Beef Association.

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Thursday, December 20,2007

Fed market begins rebound

by WLJ
July 9, 2007 With the exception of some light trade volume in Nebraska at $135-136, prices $2-3 higher than the prior week, most trade looked to be at a standstill until either late Thursday or Friday. Southern Plains traders were able to improve the market two weeks ago despite lower money being paid in the north. The result could mean that the summer low is in and upward trade is ahead. In fact, last week, most market analysts were calling for trade to move $1 higher. The last established market prices were $83-84 live in Nebraska with dressed sales at $133. In Colorado, live sales traded at $87 with dressed sales at $133. In the western Corn Belt, live sales traded two weeks ago at $83-84.50 with dressed sales at $133, while in Kansas, live sales traded at $87 with dressed sales higher at $136-137.50. And in the Texas Panhandle, live sales were at $87.   The boxed beef cutout was also starting to show signs of having reached its bottom at least for the near term. Post-holiday buying was expected to spur the cutout to better prices late last week. In fact, the recovery appeared to be starting even before the Fourth of July holiday. Last Tuesday, the Choice cutout rose 86 cents, to move above the $140 level. However, by mid-day Thursday last week, it had dropped 44 cents, falling back to $139.98. Select also lost ground, sliding back 15 cents to $133.47. Slaughter volume for the week was still 3,000 head above last year’s level at 378,000 head, but well behind last week’s volume of 507,000 head because of the holiday. Slaughter volumes remained strong and packer margins, according to HedgersEdge.com, at $11.10 per head are providing incentive to keep chain speeds at current levels. The short kill last week could help support the boxed beef market, particularly if the holiday beef movement proves to be strong as expected. There are tighter supplies of fed cattle ahead and that could also cause wholesale buyers to come to the table in an effort to secure supplies against the higher futures prices later this summer and into fall. What remains to be seen is whether packers will be willing to play along.   Futures markets last week also moved higher as a result of several factors including a slip in corn, a surge in feeder cattle prices, and improving cash fed cattle. The August contract gained 72 cents, settling at $90.70, while October rose 62 points to end the session at $95.37. December added 37 points, closing at $96.12 and February 2008 live cattle issues finished the day’s trading up 27 cents at $97.20.   Cow slaughter and cutout prices remain strong despite what has been heavy volume during the first half of the year. Cow slaughter last Thursday was 23,000 head, running in line with the average for the past several weeks. According to Livestock Marketing Information Center (LMIC), during May, federally inspected cow slaughter was 477,000 head compared to 416,000 head in May 2006. Of that total, beef cow slaughter was 286,000 head, 47,000 more than the same month last year and 17 percent higher than the five-year average. Dairy slaughter was up 17 percent from May 2006, but 1 percent below the five-year average.   “In the second week of June, (federally inspected) cow slaughter was estimated at about 130,000 head, essentially unchanged from a year ago. For that week, U.S. beef cow slaughter was 1.3 percent above 2006’s while dairy cow slaughter declined about 1.4 percent,” the LMIC report said. “Unless weather conditions improve, severely dry conditions in the Southeast and West regions of the U.S. will further contribute to beef cow slaughter numbers this summer, however on a national basis, total cow slaughter is expected to decline in the second half of the year.” However, despite the high volume, cow beef prices remain strong as grind product continues good clearance levels at the wholesale level. The cow beef cutout gained $1.41 last Thursday, to trade at $115.85. The 90 percent lean was also higher at $144.37 and the 50 percent was at $57.01. The strength of the market is likely tied to the lackluster movement of feedlot beef. Higher consumer prices for food and fuel have been cutting into discretionary spending and it is likely that people will opt for ground beef when it comes time to summer barbeques. Feeder cattle Feeder cattle prices last week found additional strength as a result of a sharp decline in corn prices following the release of USDA’s corn acreage report. The survey showed that corn growers responded with greater fervor than anticipated to the skyrocketing prices. According to the National Agricultural Statistics Service (NASS), the actual number of acres planted was 2.7 percent higher than the initial plantings report issued in March, and well above the average market estimate. According to projections, growers planted approximately 92.888 million acres of corn, a 19 percent increase over last year. In the same report, NASS estimated that harvested acres will top 85.4 million acres, a 21 percent increase from 2006.   NASS forecasters also increased the expected yield for the 2007 corn crop from a previous estimate of 150.3 bushels per acre to 154.1 bushels per acre, which means that this year’s crop could reach 13.7 billion bushels nationally.   According to Kansas State University Agricultural Economist James Mintert, that means that, “combined with an expected carryover of 987 million bushels, total corn supplies in 2007/2008 could reach 14.7 billion bushels. Holding corn demand constant at the levels projected by USDA back in June implies that ending stocks at the end of the 2007/2008 marketing year will be near 1.7 billion bushels, about 72 percent larger than at the end of the 2006/2007 marketing year.” The result of that bearish market news was a sharp drop in corn prices on the cash market as well as in the Chicago Board of Trade (CBOT) futures market. Last week CBOT December corn contract prices had fallen to $3.41 per bushel, compared to $3.99 just two weeks earlier. It appears there will be enough corn, barring catastrophic weather problems, to satisfy market demand through next year. The next big market mover is likely to be USDA’s supply and demand estimate due out July 12, which will include the newly revised crop plantings estimate. “Since June 25, July 2007 corn futures have declined about 25 percent. New crop 2007 futures have also fallen sharply, declining about 22 percent over the same time span. But looking further ahead, the decline in new crop 2008 futures has been smaller, totaling just 11 percent,” Mintert said. “Deferred futures contracts did not decline as much as nearby contracts, in part because of the need to keep corn prices high enough to encourage large corn acreage again in 2008. If 2007 crop yield potential continues to improve, the projected 2007/2008 ending stocks-to-use ratio suggests there is still downside price risk. But for livestock producers, strong consideration should be given to using additional corn price weakness to accumulate long-term feed requirements.” The drop in the corn market comes at a critical time for cow/calf producers and feeder cattle buyers. The largest video auction sales of the year are scheduled for the week of July 9, and the drop in corn should add extra incentive for buyers, while providing a strong market for sellers. Although there were few markets last week holding sales as a result of the holiday, the trend was upward in most regions. For example, in Amarillo, TX, feeder steers and heifers sold mostly steady, with instances or $1 higher on 700-800 lb. heifers. According to market reports, the week’s supply consisted of several load lots of Beefmaster and Beefmaster cross calves. To the north in Oklahoma City, where rain has hampered recent sales, a limited test of feeder steers and heifers sold steady to $3 higher. Steer and heifer calves were mostly steady on a very light pre- holiday run. Most cattle at the auction were reportedly carrying ample mud. However, there was good attendance despite light supply and demand was called good for all classes of cattle in offer. In Belen, NM, last week, feeder steers and heifers under 600 lbs. were in light supply and no market comparison was available, however, those over 600 lbs. were called $1-2 higher on moderate trade and demand. Meanwhile, in Salina, UT, feeder steers were mostly $1-2 lower on limited numbers, while feeder heifers were $1-2 lower on limited numbers and Holstein steers sold firm to $1 higher.

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Thursday, December 20,2007

BeefTalk

by WLJ
July 11, 2005 There seems to be a growing thought that once the appropriate database is selected, along with the mandatory placement of national electronic livestock identification tags, traceback will become a reality. One probably should not contradict that assumption because, given enough might and fortitude from appropriate agencies, eventually anything can be accomplished. Since fall 2004, the Dickinson Research Extension Center (DREC) has been tracking more than 5,000 calves that originated in North Dakota. These calves have been dispersed slowly across the central part of the U.S. Present traceback statistics reveal that roughly a fourth of the calves have been harvested at a slaughter facility and about a fifth remain on their premises birthplace. The remaining calves are residing in various backgrounding or feedlot facilities. Up to now, the process of traceback has been a manual people effort. The electronic database portion of the study has not been able to track the cattle from point of origin through different premises on the way to harvest. This lack of electronic tracking underscores the reality that electronic connectivity from premises to premises is nonexistent. Zero calves have been successfully tracked electronically from birth to harvest. A total of 1,308 calves have been tracked successfully utilizing the manual, people-based system. That is not to say cattle have not been placed in electronic databases. Cattle have been entered into the larger databases; however, the willingness of all parties to enter cattle into the same database or to share data from one database to the next has not happened. One outcome of the reluctance to share database information has been manual traceback. The cattle have been traced by utilizing the existing paperwork at local marketing entities or through the brand inspection service, when available. In theory, the databases should work, but the current data, collected through the trial project at the DREC, required cooperation and communication among producers, buyers, brand offices, marketing agencies, feed yards and packers. Not a single animal was traced to the endpoint using electronic identification tags, readers or databases. The saga of the electronic identification (EID) tag has been one of difficulty. The first lesson we learned was that EID tags, if they are to work, must remain in place and not be cut out. Tags on 79 percent of those calves entered into backgrounding lots and 13 percent of those calves placed into feedlots were cut out. Our second lesson was the importance of education and compliance. Tags and readers must be compliant with the current International Standards Organizations (ISO) specifications to work effectively. In many cases, the tags were cut out because of a lack of understanding. In some cases, tags were removed because of nonstandard ISO equipment. The tags and databases do work. Current technology has provided the industry with a view of the capabilities of electronic livestock identification. Because of the need to move cattle in an organized and efficient system, the current low-frequency technology is cumbersome and not up to the speed of daily commerce. Cattle need to move in an organized and efficient system. The current efforts within the beef business seem to be headed to the adaptation of technology that will be fully dated at the time of implementation. Not much different than a snail's pace because, by the time the industry has fully comprehended what needs to be done, too much steel, wire and cement will have been set with tremendous frustration and expenses at having to redo what currently appears to work. Words of advice—Be careful and know what you are getting into when you sign the contract. May you find all your NAIS-approved ear tags. — Kris Ringwall (Kris Ringwall is a North Dakota State University Extension beef specialist, director of the NDSU Dickinson Research Center and executive director of the North Dakota Beef Cattle Improvement Association. He can be contacted at 701/ 483-2045.)

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Thursday, December 20,2007

COMMENTS

by WLJ
July 11, 2005 Now that we have had our first case of BSE, and the news has worn off with the markets pretty much ignoring the episode, it’s time to get back to the issues we have a chance at controlling. National identification just got a shot in the arm, since seven months passed between that old Texas cow being initially tested and confirmed positive for the disease. It would be nice to know a little bit about her herd mates and perhaps the feed mill that supplied the cake that these cows consumed, or if this was just one of those random natural phenomenons. There are a lot of questions to be asked, including if there is any further risk. Would national ID have solved the problem? Maybe yes, perhaps not. The way that most cattle producers would like to have this ID system work is on a voluntary basis, I think. Or as some would say it needs to be “market driven.” The USDA’s ID program won’t be fully implemented until 2009. And, the way USDA has been handling other items concerning the cattle industry, 2009 might be optimistic. USDA hasn’t been as accurate on items of importance as many would like them to be. Meanwhile, our friends at NCBA are about to announce their animal ID program to the industry. Surprisingly, it’s not industry specific. The interesting part of their ID program is that they don’t plan on taking any ownership of it. A consortium of users will manage the program, and it will be a not-for-profit company. One would think that one of the animal ID companies would have taken charge of the data technology or the company that is doing the Canadian program might be involved. An outfit called BeringPoint, a subsidiary of software giant Microsoft, will be the company designing the database platform. The nice thing about this program is that it’s not tag specific—you can cross-reference with brands or other visual tags. However, I don’t think a waddle will work. The program is intended to track the cattle. And, from what I understand, you can use a premise ID or not. Only when the cattle are commingled will there need to be a universal ID used. Now I suppose you have to ask yourself if this NCBA program will be good for producers. The politics of this program was a great concern, which is why it will be run by a consortium of users. The incentive behind this program is to quickly send market signals to producers that animal ID will pay. NCBA expects that their cattle feeder members will support the program. Roughly 80 percent of the fed cattle in the U.S. are fed by NCBA members. It is expected that the program will provide source verified cattle to packers who do business with McDonald’s and Walmart and a host of other meat sellers. It is hoped that will be enough to send market signals to the rest of the industry. NCBA is hopeful that the program provides enough incentive to get all producers interested in a national ID program. This program is voluntary, however, it would seem that a mandatory plan would be more effective to have 48-hour traceback of livestock. But, if USDA runs it, it could be a big bust. One other benefit of the NCBA program is cost. At its onset the USDA program was estimated to cost $500 million to get started over a period of time. NCBA anticipates the startup costs of its database to be just $2-3 million. The plan will start this October with some beta testing. Jay Truitt, NCBA’s vice president of public policy, has been working on the program for two years prior to taking over his position as head lobbyist and said the costs will come in developing the infrastructure for the program but that it can go at its own speed. No one is going to stick Radio Frequency ID readers in auction markets at the onset. Truitt said there are three objectives for the plan—traceback and source verification, meeting international market demands; and recording animal movement around the world. When developing the program, NCBA had input from all the various species groups and several auction markets, but not the Livestock Marketing Association. To some, anything with NCBA attached to it is suspect. But the idea that this plan will be run by a host of industry participants makes it easier to digest, and the fact that the industry is not going to wait around for USDA to get its program going says a lot about the goal of the program. Allen Bright, chairman of NCBA’s animal ID committee, said that this plan is for all producers not just NCBA members and that its goal is to move the industry forward. The best thing of all is that it is flexible and entirely optional. — PETE CROW

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Thursday, December 20,2007

KAY’S KORNER

by WLJ
July 11, 2005 All eyes and ears will be focused on a courtroom in Seattle this Wednesday. That’s where three judges from the Ninth Circuit Court of Appeals will hold an oral hearing in USDA’s appeal against the preliminary injunction that has kept the border closed to Canadian cattle under 30 months of age. It’s anyone’s guess as to when the judges will issue their decision. There’s also great uncertainty as to how they will rule. So both supporters and opponents of a border reopening will have to endure a nervous waiting period. As I’ve sifted through the mass of legal filings the past two months (I counted at least 38 legal briefs), I can’t help reflecting on the disparity between the two sides involved, producer group R-CALF and USDA. It’s tempting to portray the fight as a battle between the little guys and the mighty U.S. government. But it’s way more complicated than that because science and the law have collided with a loud crash. In essence, the three judges will have to decide whom to believe on the science. That makes me a little concerned as I wonder how three people, even as well versed in the law as they are, can decide which side has the stronger “scientific” case. On the surface, it seems a no-brainer that USDA should prevail. On the weight of evidence I’ve read, USDA appears to have followed all the guidelines recommended by the World Organization for Animal Health (the OIE) regarding BSE. It employed world leaders in risk assessment to help make its case for the final rule that would have reopened the border on March 7. It has explained how Canada’s BSE mitigation measures are almost identical to those in the U.S. Now that the U.S. has its first homegrown BSE case, the argument is even more compelling that both countries have a similar level of risk regarding BSE (a very low level, incidentally). This appears to reinforce the argument that there’s no scientific justification for keeping the border closed. Canadian cattle and beef would appear to be as safe as U.S. cattle and beef. Arguing that Canadian cattle and beef are unsafe admits by default that U.S. cattle and beef are also unsafe. I don’t know many in the U.S. industry who believe that. Our second BSE case may not play a part in the judges’ determinations regarding USDA’s appeal. That’s because they will be focusing on the legal merits of the U.S. District Court’s March 2 opinion that put the preliminary injunction in place. But from where I sit, our BSE case at the least morally undermined R-CALF’s argument. As to timing, the key question is whether the appeals court will render its decision before another district court hearing on July 27. That’s when Judge Richard Cebull will hear arguments from the two sides over R-CALF’s request for a permanent injunction to keep the border closed both to all cattle and to all beef from Canada. Several people have asked me if Cebull might grant R-CALF summary judgment before the appeals court issues its decision. I haven’t got a definitive answer to that question but most people believe he either cannot or will not do that. So what happens if the appeals court sets aside the preliminary injunction? Presumably, the border could reopen the day after the decision. If that occurs before the July 27 hearing, Judge Cebull would be faced with the prospect of having to make a decision knowing that it would likely be immediately appealed and overturned. He’s had at least 10 decisions reversed by the Ninth Circuit since he became a U.S. District Court judge in August 2001. This record suggests he might not want to be overturned again. Conversely, should the Ninth Circuit find for R-CALF and deny USDA’s appeal, Cebull would feel legally emboldened to issue a permanent injunction. He might even issue that from the bench on July 27, as he did with the preliminary injunction on March 2. USDA would likely appeal again. But in practical terms, it would be back to “square one” in its attempt to get the border reopened. With this in mind, some members of Congress who support a border reopening have already talked about the need to develop a legislative alternative. So the whole border issue could get a lot more bloody before it is resolved. What a terrible waste of energy and money. The only pockets being filled by all this are those of the lawyers. The border will reopen at some point. At what cost to the beef industry and beef demand is the real question. — Steve Kay (Steve Kay is editor/publisher of Cattle Buyers Weekly, an industry newsletter published at P.O. Box 2533; Petaluma, CA 94953; 707/765-1725. His monthly column appears exclusively in WLJ.)

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Thursday, December 20,2007

Market Advisor:

by WLJ
July 11, 2005 The Chicago Mercantile Exchange (CME) has modified the way it computes its feeder cattle index. The change will affect the August 2005 feeder cattle futures contracts and all subsequent contracts. Two specific changes were made to the index calculations. First, USDA medium- and large- frame Number 1 and 2 steers have been added to the previous category of medium and large frame No.1 steers. Second, the weight range for feeder steers has been expanded to 650 to 849 pounds, from 700 to 849 pounds. The changes were made to increase the total number of price observations available to compute the index. The addition of the 1 an 2 steer category likely will have a downward impact on the index because No. 2 steers usually sell lower than the No. 1 category. However, the addition of 650- to 699-pound steers will tend to have an upward effect on the index because those steers typically sell for more than their heavier weight counterparts. The CME feeder cattle index is important. Instead of actual delivery to settle an open contract, all open contracts after the termination of trading on the last Thursday of the contract month are settled using the index price for that day. The index is a proxy for the cash market. The index and the closing futures price at contract maturity can be expected to be equal or within a few cents per hundredweight (cwt.) of each other. The feeder cattle index is based on all feeder cattle auctions, direct trades, video sales and Internet sale transactions within the 12-state region of Colorado, Iowa, Kansas, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas and Wyoming for which prices are reported by federal and state market reporters. The seven-day index is calculated Monday through Friday. The change actually was implemented during the first week in June. The new categories were added on June l and by June 7, the index included all observations from the new categories. An important question for producers who may be contemplating using CME futures or options, or the new Livestock Risk Protection insurance, is how the changes will affect the basis for feeder cattle to be sold in the future. Basis is the difference between a local cash market price and the index. I did a quick comparison of the daily observations for the old index with what the new index would have been for 2001 through 2004. The new index averaged 24 cents per cwt higher for that four-year period. The relatively small difference could be expected because of the downward and upward price impacts that were added to the index. Feeder cattle futures contracts are available for January, March, April, May, August, September, October and November, so those average monthly differences also were calculated. The new index averaged 68 cents per cwt higher for January, 73 cents for March, 67 cents for April and 15 cents for May. However, the new index averaged 11 cents per cwt lower than the old index in August, 3 cents in September, 29 cents in October and 6 cents in November. In December, the new index moved back above the old by 15 cents per cwt. Feeder cattle hedgers may see the basis decline about 70 cents per cwt. in January, March and April, with negligible changes likely in other contract months. The quality and geographic location of an individual producer's feeder cattle still will be more important in estimating the expected basis level than the small differences between the two indexes. For example, the average basis for 700- to 849-pound, medium- and large-frame No. 1 feeder cattle sold at the six markets reported in North Dakota historically has been very close to par (cash = index) at contract maturity. However, the range in cash prices has averaged about $8 per cwt., with higher priced cattle selling $4 per cwt above (plus $4 basis) the index and lower priced cattle bringing $4 per cwt below (minus $4 basis). The challenge for producers is to know how their feeder cattle sell compared with others when they are marketed. Granted, that can be difficult due to the many factors that affect the market prices of feeder cattle. — Tim Petry, Livestock Marketing Economist, North Dakota State University Extension Service

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Thursday, December 20,2007

COMMENTS

by WLJ
July 18, 2005 We were expecting big news last week as the Ninth Circuit Court of Appeals held its hearing on the temporary trade injunction concerning the Canadian border and BSE. I’m told that the issue will be more about whether District Court Judge Richard Cebull was within his means to grant R-CALF United Stockgrowers of America a temporary injunction on Canadian live cattle crossing the border. It’s a perplexing debate when you consider that the beef we import is fine but the live cattle that produce the beef are not. It seems that not letting Canadian cattle in the U.S. because of BSE is like “the pot calling the kettle black.” However, R-CALF is continuing to beat the drum that Canada has a far greater risk of BSE than the U.S. That may be so, but it seems that five cases in North America still is no comparison to Great Britain or Europe. Saying your BSE problems are worse than ours is a bit childish, especially when neither country has a problem. R-CALF sent Ag Secretary Mike Johanns and the director of Human Health Services (HHS) a letter asking them to strengthen BSE prevention efforts. R-CALF said USDA and HHS are correct that the most likely routes of introducing BSE into the U.S. are through the importation of infected live cattle already incubating the disease that are rendered into feed and mistakenly fed to cattle, or the importation of contaminated meat and bone meal. The group also said the discovery of BSE in a 12-year-old domestic cow demonstrated the basic BSE protection measures adopted by the U.S. more than 15 years ago failed to prevent BSE, a foreign animal disease, from entering the domestic cattle herd. R-CALF President Leo McDonnell said that “present evidence proves that our import restrictions, our fist line of defense against BSE, were and may continue to be inadequate.” R-CALF has proposed five measures to improve BSE protection measures. Those measures (verbatim) are: 1) Prohibit importation of any ruminant or ruminant products from countries known to have BSE, or any country that has inadequate BSE import restrictions, to ensure that BSE is not introduced into those herds; or countries that do not conduct BSE surveillance testing at a level that would allow the detection of BSE at the rate of less than one case per million head of adult cattle, and also seek upward harmonization of standards and practices to a reasonable standard of safety to ensure the U.S. does not become a dumping ground for products banned in other countries. 2) Allow private firms to voluntarily test cattle of any age for BSE to meet international and domestic demand as well as exports and the BSE testing program for the identification of BSE, and the elimination of any animals so infected from the food supply, and to accurately monitor any evolution of the disease. 3) Track, identify, and test all cattle previously imported into the national herd, and implement country-of-origin labeling so consumers can choose to purchase beef and beef products from the country or countries of their choice. 4) Strengthen the feed ban to exclude all animal protein and animal by-products from all livestock and poultry feed, including blood, poultry litter, plate waste, tallow, and specified risk materials (SRMs) and ban the use of ruminant blood meal, bone meal, and ruminant tallow in milk replacer and colostrum. 5) Prohibit Advanced Meat Recovery (AMR) systems on cattle over 12 months of age. This all sounds good but for the most part is already being done. Many of these proposals will be costly to the industry. Still, we haven’t applied the real risk to the proposed prevention measurements. BSE testing is fine, but to test all cattle isn’t necessary. If a company decides to test, would it imply that all other beef is not safe? If we treat all ruminant byproducts as suggested, it would kill any market for those products and ultimately cost producers a minimum of $75 a head on drop credits. The measure about AMR would simply put that process on the junk pile. Ultimately there is a cost to producers to implement every one of R-CALF’s proposals. The way I see it, the system is working. No BSE-positive animals have made it into the food supply, at least since the first case found in Washington. The only element in these proposals that we should pay attention to is the part about harmonization of BSE standards. The human and animal health risks associated with BSE is so small that it doesn’t require sacrificing the value of your cattle, and most of these measures will affect the value of live cattle. The current system is good enough. — PETE CROW

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Thursday, December 20,2007

Canadian cattle trade decision pending

by WLJ
— Ruling by permanent injunction trial date hoped for. The issue of Canadian cattle entering the U.S. remained unresolved as of press time last Thursday, as an appellate court panel was weighing arguments on the issue. The Ninth Circuit Court of Appeals’ was called “receptive” to arguments from both sides of the ongoing battle and was noncommittal about the pending decision, according to sources in attendance at last Wednesday’s hearing in Seattle, WA. Unlike a normal trial hearing, attorneys from both USDA and R-CALF United Stockgrowers of America fielded questions from the three judges on the bench for about 40 minutes. Hearing attendees indicated that most of the questions were originally directed at counsel representing R-CALF. The justices were particularly interested in R-CALF’s contention that USDA was inconsistent in its use of scientific justification when finalizing its rule to allow Canadian live cattle into the U.S. R-CALF attorney Russell Frye told the appellate court that District Court Judge Richard Cebull agreed with the allegations that USDA made its import rule on the basis of politics and then worked backward to justify the rule by incorporating science. He also said the arbitrary nature of USDA’s action was evident since the original rule allowed beef from all ages of cattle to enter the U.S. when only live cattle 30 months or younger would be allowed. There was an indication from the appellate panel that Cebull may have ruled against USDA and its final import rule because he didn’t agree with the decision, and that he may have not shown an appropriate amount of deference to USDA. Leaders from the Washington Cattlemen’s Association (WCA) said the panel was interested in analyzing Cebull’s decision further to see whether there was any factual basis or legal arguments that led to his granting a preliminary injunction against Canadian cattle entering the U.S. There was no time line for an appellate court ruling known as of last Thursday. Counsel from both sides were hopeful to have a ruling on the issue by July 27, which is when Cebull is scheduled to hear testimony on a request for permanent injunction against Canadian cattle and beef entering the U.S. Legal sources last week indicated that Cebull could issue a continuance in the permanent injunction suit if the appellate court hasn’t ruled on his preliminary injunction decision by that time. A continuance would delay the permanent injunction hearing until after the appellate court’s ruling is made. Cebull ruled in favor of R-CALF’s preliminary injunction request May 2, five days before USDA was scheduled to reopen the border to Canadian cattle 30 months or younger. The border was originally closed to Canadian cattle and beef in May 2003, after the country reported its first confirmed case of BSE. Beef from animals under 30 months of age with specified risk materials (SRMs) removed was allowed back into the U.S. several months later. However, cattle and beef without age restrictions and SRMs removed have not been granted access. — Steven D. Vetter, WLJ Editor © Crow Publications - Any reprint of WLJ stories, except for personal use,  without permission, written consent and appropriate attribution is prohibited. ©1996-2005 Crow Publications. All rights reserved.

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Thursday, December 20,2007

LEGALLY SPEAKING

by WLJ
July 18, 200 An area of concern in IRS audits of farming, livestock and horse activities is the amount of time expended by the taxpayer in the activity. A recurring problem is that taxpayers do not keep contemporaneous time records, but instead “reconstruct” time records in the face of an audit. This can always be a hurdle because it suggests that you did not really conduct the activity in a businesslike manner, but instead simply prepared self-serving records after the fact, and only because the IRS has indicated its intention to conduct an audit. Another problem is that proper records of time should break down the time on a daily, or at least weekly basis, to be credible. The IRS and the Tax Court take the position that if your primary objective is to achieve profitability of your operation, you will demonstrate significant interest in monitoring and documenting the time expended. In judging whether the taxpayer spends sufficient time on the activity, it is relevant to examine the relative importance of the activity compared with the taxpayer’s other activities. The fact that the taxpayer devotes a limited amount of time to the activity can be used as evidence that there is a lack of profit motive. In some cases, the fact that the taxpayer devoted an insufficient amount of time to the farm was a significant element in ruling that the activity was not conducted for profit. For example, in Hambleton v. Commissioner, TC Memo 1982-234, the taxpayer was transferred to Washington, D.C. from New Jersey, where the farm was located, and he was able to work on the farm only weekends, holidays and vacations, which the court found to be insufficient time. In that case, the taxpayer’s activities on the farm during weekends, holidays and vacations, consisted of mending fences, cutting hay and operating cattle breeding. The taxpayer sought advice from local farmers, had soil classification tests performed on the property, and attended cattle meetings in an effort to obtain advice and information concerning cattle breeding. The farm was also used for recreational purposes: the taxpayer had a swimming pool, and maintained five Shetland ponies on the property, which were ridden by the taxpayer’s wife and children. After the taxpayer was transferred to Washington, he employed a farm manager to care for the farm during his absence. The duties of the farm manager consisted of feeding the animals (including the ponies), cleaning their stalls, mowing and harvesting the hay, spreading manure, cutting firewood, keeping trespassers out of the property, repairing fences, cleaning the swimming pool, sweeping the patio area of the house, and general caretaking. The farm produced very little income, primarily from the sale of hay and pasture rental, and generated 8 years of significant losses. There was one profit year. The taxpayer had significant income from other sources, and the court said that the farm losses served to offset substantial amounts of his other income. The court said that the enjoyment of the farm and its recreational aspects were contributing factors in the taxpayer’s decision to visit the property almost every weekend. His enjoyment of the farm environment itself is not inconsistent with a profit motive but, the court said that when viewed together with the economic output on the farm along with the effort expended to commute every weekend, “it appears that the enjoyment of being at the property and attending to it was more important to petitioners than the potential of supplementing their other income by realizing a profit from the farm operation.” The court made much of the fact that the taxpayer was only able to devote time on the weekends and holidays after his job transfer to Washington, D.C. Yet the court acknowledged that the taxpayer “worked diligently at clearing the fields, harvesting hay, and mending fences and buildings.” Moreover, he hired a caretaker to attend to the property during his absence. The court said that “the employment of a experienced farmer would be a factor pointing to a operation engaged in for profit.” However, the caretakers hired by the taxpayer also had outside full-time jobs and had no particular expertise in farming. Thus, the court held that the taxpayer failed show that the time he devoted was consistent with a profit activity. In another case, Pickren v. Commissioner, TC Memo 1981-52, the taxpayer spent only two or three weeks a year working on his new farm, and the court found no bona fide profit objective. In that case, the taxpayer purchased a 240-acre farm which he intended to work on during the summer months. For the first three years in question, he worked on the farm during the summers for a period of only 2-3 weeks. The farm was in poor shape and contained no habitable dwelling. He did such things as repairing fences and clearing land of underbrush. The farm contained mostly timberland. However, the taxpayer did not harvest any timber, nor did he raise or sell any crops, or did he buy any livestock to raise. During his absence, the farm was unattended. No income was earned from the farm. Rather, he claimed various business expenses for repairs, supplies, taxes, land clearing, depreciation, labor, and other items. The court said that the manner in which the taxpayer operated the farm was not indicative of a bona fide intent to make a profit. The main reason for this conclusion was that the taxpayer spent very little time or money in trying to change the condition of the farm. The taxpayer did not indicate that he had any intention or prospects of spending more time on the farm in the future, and he must have known that the amount of time he could devote during the summer would be insufficient to make the farm profitable. Moreover, the taxpayer spent only limited amounts on things that would positively affect the farm’’s conditions--such as repairs, seed, and land clearing. — John Alan Cohan (John Alan Cohan is a lawyer who has served the farming and livestock industry since l98l. He serves clients in all 50 states, and can be reached at: (3l0) 278-0203 or by e-mail at JohnAlanCohan@aol.com.)

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Thursday, December 20,2007

Hay mold a growing concern

by WLJ
— Negative impacts on calves cited. — Additional waste weighs financially. Forage and ruminant nutritionists are urging producers to be careful when it comes to buying their fall and winter hay and other harvested forages due to concerns that mold is more prevalent this year than the past several years. First and second cutting hay from the central and northern Plains, Intermountain West and Northwest are of the most concern because of the abnormally-heavy rains that inundated those areas during spring and very early summer. “A lot of early hay was already down when it got rained on,” said Kurt Leffler, hay specialist with LMO Agriculture, Inc., Decatur, MO. “Even with allowing it to dry several days, chances are the air was still damp enough to threaten hay quality and safety at baling time.” He also said the wetter-than-normal spring helped pre-harvest mold levels which usually accumulate on the under side of leaves where the sun can’t do its job of killing or minimizing mold colonies. Leffler said it appears that in several areas of Missouri, Kansas and Colorado, mold may have impacted 8-10 percent of the first and second cutting hay harvests, with some producers reporting 20-25 percent spoilage. Usually, Leffler said, mold rates are well under five percent, at two to three percent. “In one case, it was so bad a whole 4,000-bale stack went up in flames because the hay was wet, got overly hot, and spontaneously combusted. The odor was very bad, indicating the hay was also very moldy,” Leffler explained. Hay mold isn’t considered very toxic to mature open cows or bulls, particularly in very small levels. However, it is a concern when mold is fed to bred cows with calves on them or to the calves themselves. “The biggest problem with moldy hay is that calves can turn sickly from eating it directly or by drinking the milk from their mothers that have eaten the hay,” said Rick Turnbull, ruminant specialist with Wichita-based, HiPlains Livestock LLC. “Scours, lost appetite, reduced weight gains and lethargy are the most common impacts to young cattle.” Turnbull added that while palatability might not seem to be an issue with a lot of hay that shows just slight incidence to mold, the issue of hay waste becomes a financial burden in the case of heavy mold presence. “I’ve seen where heavy mold in hay can result in 30-50 percent of hay being wasted—that means not being eaten and being trampled on or used as bedding,” he said. “While prices are a lot cheaper than they have been the past few years, that waste still adds up and that’s a lot of extra money that needs to be shelled this winter for feed resources.” Moldy hay is most easily caught by smelling bales or loaves of hay. A rancid or mildewy smell is a good indicator that hay is at least somewhat moldy and should be avoided, or in the case of feeding older, unbred animals, bought at a reduced price, Turnbull said. If bales are also hot to the touch they should be avoided, because moisture has been trapped within the hay and is not only moldy but is rotting all the way through. — Steven D. Vetter, WLJ Editor © Crow Publications - Any reprint of WLJ stories, except for personal use,  without permission, written consent and appropriate attribution is prohibited. ©1996-2005 Crow Publications. All rights reserved.

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© Crow Publications - Any reprint of WLJ stories, except for personal use, without permission, written consent and appropriate attribution is prohibited. 2008 Crow Publications. All rights reserved.